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Black may have finally met his Waterloo

Napoleon admirer faces corporate exile

Globe and Mail Update

Conrad Black the corporate mogul is history.

A Delaware judge's depiction this week of Lord Black as a wily and ethically challenged executive is the latest in a series of business and legal setbacks that observers believe will force Lord Black to exit the corporate landscape he has dominated so controversially since he seized control of the fabled Canadian conglomerate Argus Corp. at the age of 33 in 1978.

"His business career in public companies is over," said Hal Jackman, a retired Toronto businessman and former Ontario Lieutenant-Governor, who once served as an Argus director with Lord Black.

"He should let the smart guys sell his company and concentrate on writing books, newspaper columns and giving history lectures."

Lord Black has spent most of his career proving his critics wrong by bouncing back from financial and strategic setbacks. He weathered the jarring collapse of Argus's farm implements manufacturer Massey Ferguson Ltd., a 1982 SEC investigation into his failed attempt to take over Hanna Mining Co. of Cleveland, and numerous high-wire restructurings of his heavily indebted corporate interests.

He has had many occasions to make sport of detractors who mistook temporary defeats as a sign that, as he put it, he "was on the ropes." But now, the long-time admirer of Napoleon, whose portraits and furniture grace his homes, seems to have met his Waterloo.

The remains of the vast Hollinger International Inc. newspaper empire, which once boasted more than 200 newspapers and an asset value exceeding $3-billion, are now on the selling block. The harsh denunciation of Lord Black's management style by Vice-Chancellor Leo Strine, the judge in the Delaware Chancery Court case, will likely send possible investors and lenders to the hills as long as he is in control. More seriously, Lord Black potentially faces a ban from public companies or even criminal charges if the U.S. Securities and Exchange Commission, the Ontario Securities Commission and Justice Department investigators agree with Judge Strine's findings.

Weighing against Lord Black is a so-called consent decree that he signed in 1982 with the SEC in relation to the Hanna Mining takeover attempt, in which he agreed not to violate securities rules in the future. If the SEC finds he did break securities regulations, legal experts said he could face serious sanctions and a possible ban as an officer of a U.S. public company.

As for Lord Black's multimillion-dollar fortune, it is rapidly being whittled away by a small army of high-priced lawyers whom experts say could be charging as much as $1-million a month to advise and defend him on numerous fronts.

Lord Black is employing some the most expensive legal talent in the United States and Canada. At the top of the list are a team of high-powered New York lawyers at Sullivan & Cromwell led by John Warden, who represented Microsoft in its antitrust case, and Benjamin Stapleton, who oversees the firm's mergers and acquisition group, one of the most respected in North America. Legal sources said each of these lawyers charges about $800 (U.S.) an hour for his services.

Lord Black could sustain further personal losses if Hollinger International seeks to legally restrict his access to his share of any proceeds from the company's planned sale of its newspaper assets, including the London Daily Telegraph and Chicago Sun Times. Hollinger International could raise more than $1-billion through the sale of The Telegraph Group alone. About 30 per cent of the proceeds would be paid to its parent, Hollinger Inc., which is controlled by Lord Black.

Sources close to Hollinger International said that some of its legal advisers are recommending that the company seek court approval to have any sale proceeds owed to Lord Black placed into a special trust or escrow until the company reclaims money it alleges was improperly paid to Lord Black. A special committee of Hollinger International directors has asked Lord Black to repay $16.5-million of money they say he was not authorized to receive. That number may grow, sources said, as the committee continues to investigate a variety of controversial transactions that saw money and corporate assets shifted to Lord Black and companies he controlled.

Another financial challenge could come from Canadian tax authorities who may send Lord Black a multimillion-dollar bill if they find that certain tax-free payments he received from Hollinger International were in fact taxable. The disputed $16.5-million in payments that Lord Black received from Hollinger International were classified as non-compete payments. These sums are paid by buyers of various Hollinger International newspapers to ensure that the company and its senior executives do not compete against the papers that have been sold. Non-compete payments are not considered taxable, but if regulators find that the payments were not properly approved or do not technically qualify as non-compete agreements, Lord Black and his executives could face a hefty tax bill.

The most damaging hit Lord Black has taken to his future as a corporate executive was delivered Thursday by Judge Strine. His sweeping denunciation of Lord Black in the 130-page judgment casts him as a wily CEO who filed "false" and "inaccurate" statements to mislead directors and shareholders at Hollinger International about certain payments to himself and fellow executives. Information given to Hollinger International's board by Lord Black and his executives was at times so scanty, that in the case of one payment in December, 2000, the judge said it was "suggestive of what, in the old days, might have been called constructive fraud."

Such a sharply worded condemnation by a widely respected corporate judge could make it close to impossible to raise money for his troubled Toronto holding company Hollinger Inc. Co-chief operating officer Peter White told the Delaware court last week that Hollinger Inc. does not have sufficient resources to meet a $7.4-million bond payment due March 1.

While Judge Strine disputed the grim outlook, the stark reality is that once Hollinger International's assets are sold, its parent Hollinger Inc. will be little more than an empty corporate vessel. Apart from its stake in the soon-to-be-sold Hollinger International newspapers, Hollinger Inc.'s only other assets include a minority interest in a newspaper in the Cayman Islands and some Canadian real estate.

It's a far cry from the huge Argus conglomerate that Lord Black bought control of in 1978, and from Hollinger's one time dominance as the world's fifth largest newspaper company in the late 1990s.

"It's personally tragic because I think he is too smart to be in this position," Mr. Jackman said.

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